Two arrested for insider trading tied to law firms

NEW YORK (Reuters) - Two men were charged over what prosecutors called an inside trading scheme resulting in more than $32 million of illegal profit from trades based on information stolen from prominent U.S. law firms.

Matthew Kluger, a lawyer, and Garrett Bauer, a trader, conspired to trade in a variety of technology stocks including McAfee Inc, Sun Microsystems Inc and 3Com Inc, according to a complaint filed with the federal court in Newark, New Jersey.

The pair invested more than $109 million in the scheme, which ran from 1994 through this March, the complaint said.

Prosecutors charged the defendants with 17 counts, including 11 counts of insider trading, four counts of obstruction of justice, conspiracy to commit insider trading, and conspiracy to commit money laundering.

It is not immediately clear whether Kluger and Bauer have retained lawyers. Kluger did not immediately return a call to his home seeking comment. Bauer could not immediately be reached for comment.

U.S. Attorney Paul Fishman in New Jersey, and officials from the FBI and the U.S. Securities and Exchange Commission are expected to hold a press conference on the arrests later Wednesday.

The news follows dozens of arrests since October 2009 relating to federal allegations of insider trading focused on hedge funds. One-time billionaire Raj Rajaratnam, who founded the hedge fund firm Galleon Group, is on trial in Manhattan in Wall Street's biggest insider trading case in two decades.

Prosecutors said Kluger's and Bauer's scheme involved trading based on information stolen from the law firm Wilson Sonsini Goodrich & Rosati, where Kluger had worked in Washington, D.C. until last month as a senior associate.

They said it also involved trading based on information stolen from Cravath Swaine & Moore LLP, where Kluger worked from 1994 to 1997, and Skadden, Arps, Slate, Meagher & Flom LLP, his employer from 1998 to 2001.

Prosecutors said Bauer worked at a variety of firms, most recently at Lighthouse Financial Group from about June 2009 through roughly August 2010.

According to the complaint, Bauer in late 2009 spent more than $7 million of proceeds from the scheme to buy two homes: a $6.65 million condominium on Manhattan's Upper East Side, and an $875,000 home in Boca Raton, Florida.

A Cravath spokeswoman had no immediate comment. Calls to the other law firms were not immediately returned.

The case is U.S. v. Bauer et al, U.S. District Court, District of New Jersey, No. 11-mag-03536.

(Reporting by Jonathan Stempel in New York; Additional reporting by Dena Aubin; editing by Dave Zimmerman)